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State Name: Washington
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MND NewsWire features plain and simple interpretations of industry related data and events written in a manner that maintains the interest of random readers while still catering to the perspective of a housing market professional.

The fourth and last of the final regulations
coming from the Consumer Financial Protection Bureau under the Dodd-Frank Wall
Street Reform and Financial Protection Act was released Friday afternoon. This rule addresses the causes of what CFPB
Director Richard Cordray said was one of the reasons for the collapse of the
mortgage industry, the steering of consumers to high-priced loans.

It was common for at least a portion of
the compensation paid to loan officers and mortgage originators to be tied to
their success in writing specific types of loans. These loans were usually those that were most
profitable for the lenders and thus more expensive for the borrowers. Thus the loan officers were being compensated
for steering consumers toward the loans that were probably the most costly and
possibly the least suitable for them.

After the collapse the Federal Reserve
took steps to change the model under which loan officers, originators, and
brokers were compensated. Richard
Cordray, Director of CFPB, said that the rules released today, mandated by the
Dodd Frank Wall Street Reform and Consumer Protection Act build on those
developed by the Fed.

"Before the financial crisis,"
Cordray said, "many mortgage borrowers were steered towards risky and high-cost
loans because it meant more money for the loan originator. These rules will hold loan originators more
accountable by banning the incentives that led so many of them to direct
consumers toward disaster."

The rule has undergone several
iterations and periods of public comment.
One notable change in the final rule from the most recent version
released last August is that originators are no longer required to provide a
consumer with a no-fee or flat loan quote when they quote a loan with
fees. This was intended to give
consumers a concrete way to compare the cost advantages or disadvantages of
paying upfront fees or costs. Cordray
said numerous public comments convinced CFPB that the flat price example would
merely be confusing to consumers.

The new rule prohibits steering
incentives. A loan officer or broker
cannot be paid more if the consumer takes a loan with a higher interest rate, a
prepayment penalty, or higher fees. Nor
can the LO be paid for convincing the consumer to buy additional services from
the lender, broker, or an affiliate such as title insurance or mortgage life
insurance. The loan officer or broker can be compensated by way of other
models such as on the number or size of loans or the aggregate dollar volume of
loans written within a stated time period.

The rule also prohibits the loan
officer or broker from being paid by both the consumer and another person such
as the creditor, i.e. dual compensation.
CFPB said that in the run-up to the mortgage crisis consumers often
incorrectly assumed that because they were paying their loan originators they were
looking out for the consumer's interest. However, the Final Rule issued today includes an exception "to allow mortgage brokers to pay their employees or contractors commissions, although the commissions cannot be based on the terms of loans they originate"

While the Dodd-Frank act prohibits consumers from paying upfront points or fees on the same loan where the originator is compensated by someone other than the consumer, it also authorizes the CFPB to waive or make exceptions to the prohibition. Such a waiver was proposed in order to facilitate consumer shopping and preserve consumer choice. Although the proposal wasn't finalized today, the CFPB decided to issue a COMPLETE EXEMPTION to the ban on upfront fees.

In the meantime, the bureau says it will be scrutinizing "several crucialissues relating to the proposal’s design, operation, and possible effects
in a mortgage market undergoing regulatory overhaul. The Bureau is planning consumer
testing and other research to understand how new Dodd-Frank Act requirements affect
consumers’ understanding of and choices with respect to points and fees, so that the Bureau can
determine whether further regulation is appropriate to facilitate consumer shopping and
enhanced decision-making while protecting access to credit."

The rule also sets uniform standards
for qualifying and screening loan originators.
Under current rules loan originators have different sets of qualifying standards
depending on whether they work for a bank, thrift, mortgage brokerage, or
nonprofit organization. The new rule provides a more level playing field so
consumers can be confident that originators are ethical and knowledgeable. The
final rules generally require:

That they are required to undertake training
to ensure they have the knowledge about the rules governing the types of loans
they originate.

Mandatory arbitration of disputes
involving mortgage and home equity loans are generally prohibited by the new
rule as is the practice of increasing loan amounts to cover credit insurance premiums.
These two sections of the law will take
effect in June 2013 while the balance of the rule will go into effect in
January 2014.

In a press conference accompanying
the release of the new rule senior CFPB staff said they will be doing baseline
reviews of the effects of the new rules over the next year and will be working
with the affected parties to implement them, watching closely as they are
implemented, and following up with stakeholders. They will also be watching the interaction of
rules issued by CFPB and those issued by other regulatory agencies.

Comments

We as a society should instead determine when, how much and why these agents of the govt. get paid - who do they think they work for, anyway? Just another assault on our free market principles, liberties and freedoms.

Allowing Loan Officers to be paid commissions on the volume of loans originated is the greatest victory here. My biggest fear was that my earnings were no longer to be commensurate with my production and that would have been an American tragedy. All I've been hearing lately is salary or hourly; take your pick. I choose neither! Just pay me what I'm worth based on my production!!!!

All seems to be going in a common sense relatively industry friendly direction so far, while still providing protections for consumers. And Bryan--to answer your question--these agents of the government get paid to enforce these rules because we didn't regulate ourselves, and to date, have not provided a unified alternative. Society has paid a heavy price for free enterprise gone wild.

Steer my clients to higher rate loans so I can earn a higher commission? Are you crazy? How am I, a fully CA-DRE and NMLS licensed mortgage broker, supposed to stay in business if I do that to my clients? I have been originating loans for 30+ years. My business is based on referrals from satisfied clients. And yes, I'm as good as my last loan. And proud of it. I serve my clients best interest whether that was a Neg Am loan (there was a good reason for originating this type loan at one time), an Interest Only loan, a Stated Income (but VERIFIED ASSETS) loan for my self employed borrowers (only)... Look to place the blame on Wall Street-MBSs, Derivatives, Lehamn Bros., Bear Stearns, Merrill Lynch if you want to find the origins of the credit crisis. If there was no product to sell there would have been no crisis. My blood pressure is up, enough said for today :-(

I have been lending for over 25 years and I did not take advantage and overcharge my borrowers. You are all correct and unfortunately, it is true, the borrowers are going to lose now, once again. I am now working for a bank, tied up in regulation and clock ticking dates that prevent me from earning a decent living. The business is extremely difficult now and it was not the originators who caused the problem. I always offered my borrowers a choice and never charged or earned ysp of more than 1.5% ever. It really bothers me that the honest and reliable LOs that were ethical and did a great job are paying the price as well. I have lost so much respect for the industry due to the effort to protect the consumer but once again missing the mark. Perhaps if actual ethical LOs were able to contribute to the conversation before the decisions were made to screw us all....consumer and LOs...no one wins

Wow--we're back to blame and hopelessness after this news? HARP 2.0 is allowing so many upside down borrowers to refinance and reducing the likelihood they will become rational defaulters. Appraisals--purchase and refinance are starting to show signs of stabilization and even appreciation in some cases. Rates remain at insanely historical lows. As Zig Ziglar used to say "Life just ain't that bad".
There is no reason ethical LOs can't continue to contribute to the conversation by educating customers and posting real life examples of what we do to serve and protect consumers every single day, as well as provide the details of stuff that just isn't working, or is even hindering progress in housing recovery. Lion has 30 years of success stories, Cindy has 25 years of success stories, and I have 22 years of success stories, some of which I have shared in the past 6 months. Imagine if every community member posted a real life example of how we serve and protect consumer every day for the next year on Community Commentary! Or showed a detailed from the closing table example of something that harms consumers..then then offer a more common sense alternative. The regulatory and legislative powers that be would have written proof from an ethical body of LOs SHOWING them that consumer protection is built into our business practices. No one wins, if no one tries. And I hate the word try anyway--because it gives an easy out. Do or do not. There is no try. We just haven't done what needs to be done. Unless you're pushing up daisies, there's always time to do something ...or at least contribute to the conversation.

I have been a Mortgage Banker and originator for 30 years and we didn't regulate our selves very well and are now paying the price. But on the flip side we were not the only ones involved yet we have taken the brunt of the blame. The problem for the consumer is they have no idea of the true cost of protection. The Market made most of the correction without any government intervention. You couldn't originate a bad loan right now if you wanted too, as far as I know. Who is there to buy it.

Ronnid--I agree with you--but the answer is in this statement: the problem for the consumer is they have no idea of the trust cost of protection. But you have to expand your vision--this was NOT just about bad loans. This was about bad SPECULATIVE HOUSING PRICE PRACTICES too. Bad loans made it easy to bid up houses--but there were no economic fundamentals at work to control the pace or amount of the annual increases. What causes house prices to rise? Or better yet, what SHOULD cause house prices to rise. How much is too much? And please don't give me the "it's what a buyer and seller are willing to pay". You can pitch that when you are doing a cash offer--but when we are lending 96.5% leveraged money to people to buy an asset that also happens to be their primary form of shelter in most cases, saying "it's just the market" is not going to fly. You couldn't originate a bad loan if you wanted to--but you sure as hell could see a consumer pay too much for a house in a bidding war and then end up having to reduce his/her net worth by however much cash is needed complete the purchase when the appraisal used for the financing doesn't match the "housing price trends" we keep hearing about. Already hearing examples of buyers paying $10k, $15k, or more to finish a financed purchase on missed appraisals--but since these are loan costs this doesn't fall under any of the QM or QRM protections.

clarifying the last sentence--since these (extra $$ spent to pay down on a financed purchase appraisal miss) are NOT loan costs, this doesn't fall under any of the QM or QRM protections as far as I can tell.

You only have to look at the National Association of Realtors to see the benefits of self-policing. NAR has installed a standard of ethics and duties for its members and created a strong enough lobby in Congress that they may be frequently attacked, but rarely lose a battle. The diligence with which the NAR enforces its standards may be questioned, but their existence provides cover from the well-intentioned (maybe) in Congress whose lack of understanding of the mortgage industry is obvious as they spew forth superfluous drivel in an attempt to have it be accepted as genuine academia. If the highly fractioned industry had created a national self-policing agency on its own, then Congress would never have gotten involved. While I always thought I was a fair originator, it wasn't until I was running a mortgage bank accepting wholesale loans that I realized how charitable I really was. We can all site examples of absurd commissions that we have seen earned on loans. Are we really surprised that a regulatory authority had to step in? Thinking back to 2006, how would you have required loan officers to join an organization and give up even 1% of their income to have a voice in Congress. Many of the originators had no idea what a disclosure was, nevermind the relationship between Congress and a TIL. The fluff in the industry allowed genuinely average in skill and aptitude, to earn an income commensurate with professional athletes. The unfounded arrogance that accompanied that income showed the delusional belief that income created intellect. Having sat in on a few NAMB meetings, it was obvious they were an impotent organization whose existence was token at best, and comical at worst. Where would we be now if home prices hadn't crashed? Who would be originating loans if Dodd-Frank never happened? When will the industry band together and create its own standards to have Congress adopt? I move we cease complaining about Dodd-Frank until we present our own option....which is already at least 10 years overdue.

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